What Happens If I Don’t List a Creditor in My Chapter 7 Bankruptcy?

metzenbaum court houseOne of the important steps in filing a Chapter 7 bankruptcy is to provide your attorney with all the information you can find about the debts that you owe. Normally this is done by giving your attorney all of the bills in your mailbox. Whether an original creditor, a debt collector or a collections attorney, your attorney needs all the names, addresses, account numbers and balances that you can find.
In my practice, with more than 2,000 (two thousand) consumer bankruptcy filings so far, I make it a practice to obtain a credit report from all three (3) credit reporting agencies. Unfortunately, this does not give me the whole story. Not only do most credit reports contain errors about consumer debts, most doctors and hospitals simply do not provide debt information to the credit reporting agencies. And, it turns out, medical debt is the number one reason consumers turn to the bankruptcy courts for a fresh start.
So what exactly happens when a consumer, who has provided their attorney with all the information they can, and their attorney, who has paid for a tri-merge credit report, somehow miss a creditor? Is the debt discharged anyway? Or does the attorney have to pay their attorney more money to amend their schedule of creditors and mail notice to the omitted creditor?
The answer for Ohio bankruptcy filers comes from a court decision handed down in 1998 by the Sixth Circuit Court of Appeals, In re Madaj . In that case, the consumer filed a Chapter 7 bankruptcy petition but failed to list a “substantial” debt to his foster parents. The consumer had borrowed the money with the explanation that he was going to purchase a home.
Eventually the consumer got his bankruptcy discharge. The bankruptcy court found that this was a “no asset” Chapter 7, meaning that there were no assets to liquidate to re-pay creditors. But because they were not listed as creditors, and thus had no knowledge that their foster son had even filed for bankruptcy protection, the mother and father filed a lawsuit after the bankruptcy was closed to try and collect the money owed them.
The consumer’s response was to file a motion in bankruptcy court to re-open his petition to add the mother and father as creditors. The mother and father opposed this motion, thinking that their repeated attempts to collect on the debt and the amount of money involved made it impossible to believe the consumer simply “forgot” about the debt. The Bankruptcy Court ruled that the debt to the mother and father was discharged even though they were not listed as creditors, and denied the motion to amend as unnecessary.
The Sixth Circuit agreed with the bankruptcy court’s rationale. The parties agreed that, had the debt been listed, then the debt would have discharged anyway. Therefore, re-opening the closed bankruptcy case merely to add a creditor whose debt would have been discharged anyway is a “meaningless” gesture, the court explained.
So in an a no-asset Chapter 7 (the vast majority of Chapter 7 cases are no-asset cases), the consumer is protected by their discharge against all creditors whose debt was subject to discharge, even if they failed to list that creditor in their schedule of creditors. An experienced bankruptcy attorney will know how to advise their client about omitted creditors in any bankruptcy situation.
Blake Brewer is an Ohio attorney who is a designated a federal debt relief agent in bankruptcy matters. While reading this summary does not create an attorney client relationship, you can contact him by email at blake@blakebrewerlaw.com or call him at 216-642-8234 to schedule an appointment to review options for bankruptcy protection. If you are considering bankruptcy protection, do not delay as the passage of time can seriously affect your rights in any legal proceeding.

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2 Responses to “What Happens If I Don’t List a Creditor in My Chapter 7 Bankruptcy?”

  1. Arthur says:

    My employer got a thing in the mail about gasinrhing my wages from a law firm. I have not received nothing in mail. Can a law firm garnish my wages without going through court?

    • Blake Brewer says:

      I am not sure if you are in Ohio. Even if you are not, your state should require that before you get a judgment against you, you must first be properly served with a copy of the summons and complaint. Contact an attorney, you want to hire one to vacate the judgment. That will stop the garnishment, at least for the time being.

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